Finance panel hits out at 'punitive' tax regime, seeks data on new law

The Parliamentary Standing Committee on Finance, in a meeting on Thursday, voiced sharp criticism of the current income tax framework, with members from across party lines describing it as excessively reliant on punitive measures. The panel, chaired by BJP MP Bhartruhari Mahtab, was convened to deliberate on direct tax reforms, simplification, and ease of compliance, in consultation with officials from the Finance Ministry's Department of Revenue and the Central Board of Direct Taxes (CBDT).

A central concern raised during the discussions was the perceived heavy-handed approach of the Income Tax Department. Members argued that taxpayers are often treated as defaulters, with a continuous stream of notices creating an environment of uncertainty. One ruling party member highlighted the challenge of constantly changing rules, sometimes applied retrospectively, which leaves assessees struggling to prove compliance.

The committee also examined the shifting composition of tax revenue, noting a growing reliance on individual income taxpayers compared to corporate tax collections. This trend was contrasted with the situation in other comparable economies where corporate taxes form a larger share of the revenue base.

Beyond the philosophical critique, the panel focused on the operational realities of the newly implemented Income Tax Act, 2026, which came into force on April 1. The committee has formally requested data from the CBDT to assess the law's impact after five months, specifically seeking information on changes in tax revenue collections, the number of registered assessees, and the volume of pending litigation.

While acknowledging that revenue collections have increased substantially, buoyed by a growing economy, Chairman Mahtab conceded that the new law has not yet succeeded in reducing litigation. He noted significant glitches at the appellate level and pointed to a concerning statistic: the Income Tax Department succeeds in only about 14% of its cases in High Courts.

The panel also reviewed the performance of technology-driven initiatives, including faceless assessments. While these systems are in place, members noted that assessees continue to encounter operational glitches that require corrective action. The committee has submitted a series of queries to the tax authorities and expects detailed responses within the next two to three weeks.

Separately, a member raised the controversy surrounding recent GDP estimates, questioning the reliability of official figures in light of former Finance Secretary Subhash Garg's claim that the economy grew by only 2.6% in the June quarter, as opposed to the reported 7.8%. However, as the issue was not on the formal agenda, it was not pursued further during the meeting.